Clever Ways to Save for a House Deposit
For first time buyers, saving up a mortgage deposit can be one of the biggest hurdles to getting a foot onto the property ladder. On top of a mortgage deposit, you will also need to pay for legal fees and in most cases, stamp duty. With rising house prices, lenders are often asking for larger deposit amounts to secure a mortgage offer on your first home. This can seem an impossible task for low and middle income families and for those already paying high monthly rent, especially within the London property market.
Shared Ownership means that as you only buy a share in the property you purchase, you often require a smaller deposit amount than when purchasing on the open market. You will still be required to raise a mortgage deposit for a Shared Ownership property, so below are [NUMBER] helpful hints to help you get started.
Set a target
This seems like a simple starting point, but it really helps to get a clear picture of how much your new home is likely to cost so you can work out how much you will need to save. You should take a look on property portals such as Rightmove, Zoopla or Share to Buy to build a picture of house prices and trends in the area you want to live in. You may need to consider looking in new areas as location is one of the greatest factors determining house prices.
You will then want to speak to a mortgage adviser who can assess your current financial position and tell you how much you will potentially be able to borrow for a mortgage. They can also advise on the size of the deposit you will need. While you are there, it is also worth asking about upfront fees, legal fees and stamp duty payable, as this will be payable on top of your deposit if you purchase a home.
Maximise your income
This is another no-brainer. In order to save money, you have to have money coming in - in large quantities preferably. Below we list a number of ideas - from the really obvious ones to some you might have not thought of.
Change a job
To a better paid one, ideally. Changing a job is a much easier way of getting a pay rise than actually asking for one. Make sure, however, that money is not the only motivator in accepting a new position. Given that we spend major part of our lives at work, things like job satisfaction and company culture are crucial - though often overlooked - factors contributing to our overall job satisfaction.
There are plenty of articles on how to search for a new position, but uploading your (updated) CV to portals such as Total Jobs, JobSite, and Monster, and contacting major recruiters in your industry would be a good start.
Ask for a pay rise
Many people find asking for a rise far trickier than moving to another position, but if you genuinely love your job and feel you have contributed enough to warrant a higher wage, asking for a rise may not be as difficult as you think. Sometimes people need to be reminded of the value you provide. Here is a useful article that will help you prepare your case. And here is a handy list of things that you should never do when asking for a pay rise.
Get gigs on the side
If you truly love your current job and asking for a pay rise is not an option, getting a couple of quid on the side is a good alternative.
If not, there is surely something that you can offer to jobbing communities like UpWork or People per Hour. From translation to transcription, from data entry to web design, there is a huge array of services offered on these type of websites. The upside of working on UpWork and the like is that you get total flexibility and control over when, how much, and how much for you wish to work. The downside is that it may take some time - and several hours of work for a pittance - to build your reputation on one of these platforms. Once you've made your name for yourself, though, it can prove to be a handy source of income on the side. It's definitely worth investigating.
Invest in improving your qualifications
You may be thinking of changing a job but feel that you lack knowledge and skills. Thankfully the internet offers a dizzying array of online courses - some paid, some not.
The first and most obvious port of call is YouTube - here you can find tutorials on almost any subject; perfect for picking up skills to dazzle your line manager with.
Udemy is another option - not free but very modestly-priced courses on a wide selection of subjects.
Lynda.com is more expensive but offers more advanced business-related training and comes with a free 30-day trial.
Obviously, this is just the tip of the iceberg. There are thousands of online courses - some accredited, some not - that will help you get additional skills and boost your confidence.
Cut down your spending
Increasing your wages will not make a heck of a lot of difference if you live above your means. Saving for a home deposit will require you to tighten your belt quite considerably. Here are some ideas:
Cut down on your rent
Especially in London, rents can be quite high so anything that you can do to make that number smaller will make a big difference. Some of the things you might consider to achieve that include:
Moving back in with your parents
Not a perfect solution for many but this is sure to cut down your rent and utility bills very considerably.
Opting for a flat share
Living on your own while trying to save for a deposit might sound like a luxury. Moving in with other people will allow you to make significant savings. Websites like Ideal Flatmate, Spare Room, or Room Buddies will make finding a perfect flat share easier.
Move into the suburbs
Properties outside of London tend to be cheaper than those withing zones 1-4. As long as you are willing to brave a longer commute you may find a nice little flat at a discount in one of London's satellite bedroom communities.
Become a property guardian
This is a slightly unorthodox solution but it may just work for you. As a property guardian you get to pay a fraction of the market rate rent by guarding unoccupied spaces in the capital. There are drawbacks to this arrangement - the spaces are often in dire need of renovation as they are meant to be re-purposed anyway, you are not allowed to have pets, organise parties or entertain more than two or three people at one time. The property guardian company will have right of access onto the property at any time to carry out inspections and they will have their own keys. You may be asked to vacate the property within 28 days although shorter eviction notices have also been reported.
All in all it's not everybody's cup of tea but if you can live with the inconveniences you can look at very reasonable rents in London's most desirable locations - one of the property guardian companies advertises rooms for as little as £160 per month including bills.
Cut down on your transport bills
Transport costs in the capital are the second largest monthly expense that you will face. Finding a way to lower these bills will make a big difference to your overall budget and the ability to save.
If you drive, the costs of petrol, insurance and the maintenance of your car, and above all parking and Congestion Charge will easily eat into your monthly budget so switching over to using public transport will definitely make a big difference.
If you are already using public transport, you can further cut you costs down by investing in a bicycle and starting to bike to work.
Cut down on entertaining
If you lead a life of a social butterfly, this can seriously eat into your budget. Thankfully there are ways of saving on these expenses without turning to "Billy no-mates" overnight.
Entertain at home
If you go out regularly, entertaining at home could make a huge difference to your budget - especially if you cook your own meals. But even getting a takeaway will work out cheaper than going to a restaurant, especially in Central London.
Cook from scratch
Takeways are a great way to treat yourself or as a quick and easy solution to an empty fridge but limiting your takeaways or abandoning them altogether and cooking from scratch will deliver decent savings to your budget. Invest in some decent easy-to follow cookery books and start cooking - you might find you really like it and it will put in some extra pennies (and pounds) in your pocket.
Pack your own lunch
On the subject of cooking and not going out, if you have a habit of going to Pret or Starbucks to get your lunch every day, you'll be surprised how expensive this can prove over the course of a month. Try packing your own lunch and see the savings pile up.
Seek out free events
With apps such as Meetup and Eventbrite you can now find interesting things to do at prices that are not likely to break the bank. You might even find free events to attend and make some new friends in the process.
It's amazing how much you can save by shopping for second-hand items. eBay is a great place to buy high-quality, at times designer clothes in very good condition for a fraction of the price you'd pay in a shop.
Charity shops are also a great source of bargain clothes and other items. You might get even better results if you visit shops in more affluent areas where the quality of donated goods is likely to be higher.
Look for deals
Wowcher and Groupon are not for everybody but if you like bargains they're certainly worth checking out. The trick is not to end up buying things that you wouldn't otherwise buy just because it seems like it's a great deal.
All the economising in the world won't make a bit of difference until you actually start saving for your deposit. Here are some tips on how to start.
Find savings accounts that work for you
When saving for your first home, it’s a good idea to get a savings account that allows you to contribute into it regularly. Getting a good interest rate is key, and the Money Advice Service offer a great savings account comparison table which calculates savings accounts that might be suited to you based on what you can afford to pay in.
Make sure you regularly review your savings account. Some accounts have an interest rate that is partly made up of a bonus and this bonus will normally fall away after 12 months, which will reduce the amount of interest you receive.
Look at Cash ISAs
A cash Individual Savings Account (ISA) is a tax-efficient way to save. Usually, when you have a savings account, you pay tax on whatever interest you earn. But the interest on a cash ISA isn't taxed, so all the interest you earn, you keep. Because of this fact however, the accounts come with a cap on how much you can pay in. In the 2014/15 tax year – which runs from April to April – the maximum is £15,000. You now get to choose how you split this between stocks & shares and cash ISAs. You even get to choose whether you want to split it - if not, you can use the whole amount for stocks & shares or the whole amount for cash.
You can choose from a variable rate ISA, where the rate can go up and down, or a fixed rate ISA, where you know that the interest you are paid shouldn’t change over time. However, with fixed rate ISAs you often have to pay in a lump sum at the outset which you can’t then add to, and you can’t usually make withdrawals.
Each tax year, which starts on 6 April, you get a new ISA allowance. You can compare cash ISA rates at Money Super Market.
Automate your saving
You should treat saving for a deposit like a bill you have to pay each month. Assess your budget and look to potentially create a standing order to a savings account each month. If you are not used to having this money as disposable income, you are less likely to dip into your savings to fund your lifestyle whilst saving for that important deposit.
Most savings accounts will let you pay in every month via a standing order or direct debit, so you won't even need to remember to make the payment (although you will have to ensure you've got enough in your bank account on the date the payment goes out). Speak to your bank about setting up a direct savings payment.
Get a helping hand with your deposit
Reaching out to the Bank of Mum and Dad is still the most common way of scraping your deposit together but if that option is not available to you, there are other solutions that you might look to. More and more high-street banks offer 95% LTV (loan-to-value) mortgages where you only need to put down 5% of your target deposit. There are also some government schemes that you might find useful.
Help to Buy Equity Loan Scheme
If you want to buy a new-build property at a price below £600,000 Help to Buy Equity Loan Scheme might be for you. Under the terms of the scheme, you can borrow up to 40% of the purchase price of a London property interest-free providing you are able to put down 5% deposit. You must start paying back the loan after five years. The scheme is scheduled to run until 2021.
Go for Shared Ownership
Shared Ownership is a government scheme where you can choose to purchase a share in a property - say 30% - and then pay rent on the remaining part that you don't own. In time you will be able to buy additional chunks of the property in instalments not smaller than 10% - a process referred to as 'staircasing'. When you staircase to 100% - and own the property outright - you will no longer need to pay rent to the agent you bought the property from.
You can view currently available Shared Ownership properties from Family Mosaic here.